Eurozone banks under pressure on accelerating loan default

The European Central Bank has warned about rising loan default cases and late payments as signs of stress in the eurozone’s banks. The bank is facing higher funding costs, declining asset quality, and fewer lending volumes, despite increased interest rates boosting revenue and profits.

The ECB also warns that slower growth and higher interest rates are posing problems for people, companies, and governments in the euro area.

Higher borrowing costs may lead banks to set aside more money to cover bad debts, potentially impacting future profitability. However, the banking system should be able to cope with worsening asset quality due to strong capital buffers and liquidity levels.

The decline in the commercial real estate market and rising energy prices could further pressure disposable incomes, corporate profits, and government finances.